Consolidation would be a natural step for the ethanol industry, which has passed from a heady growth phase into maturity. But the financial meltdown and the credit crunch have made natural consolidation more difficult.

The upside to fewer, bigger ethanol makers? With little room left to increase production (and little incentive with plummeting gasoline prices right now) the focus is shifting to managing costs.

Economies of scale—such as bigger plants, better capital management, and savvier commodities purchasing—could improve ethanol’s dismal economics of late, says Todd Alexander, a partner with Chadbourne and Parke, a law firm specializing in renewable energy. He expects the pace of consolidation to pick up over the next 12 months.

Longer term, though, ethanol and the wider biofuel industry still face a special set of challenges. More even than other areas of the energy business, ethanol depends on government policy for everything from biofuel production mandates to subsidies to tariffs that keep out foreign competitors.

For U.S. corn ethanol producers in particular, the challenges are acute. Rival biofuels, such as Brazilian sugarcane ethanol, offer more economic and environmental benefits. Next-generation biofuels, made from inedible feedstocks like switchgrass, promise to side-step one of ethanol’s biggest headaches this year—the food versus fuel debate.

The biggest question of all might come out of Detroit and the reshaping of the U.S. auto industry. Will a leaner, greener Detroit lean more toward electric cars and plug-in hybrid vehicles, as many Congressmen want, or will alternative liquid fuels be the way to lower dependence on oil for transportation?

You misquoted me and took it out of context: I said “With This Technology, ethanol has the potential to replace foreign oil entirely.” The technology I described above. I Don’t advocate increasing corn acreage to make more ethanol, as you seem to imply. In 2008, ethanol was made from the starch in 1 out of 4 bushels of corn. Over 80% of the corn crop is FEED CORN. We export about 20% of our whole feed corn. The byproduct of corn ethanol, high protein distillers grains could replace whole corn for both export and domestic livestock feed. We should make ethanol out of ALL of our whole feed corn, not just part of it. That would triple domestic ethanol production to over 30 billion gallons per year, without using any additional farmland. We only use 36% of our farmland. We could use more if we had to.

I advocate diluting 2 parts ethanol with 1 part water, which will extend 30 billion gallons of ethanol into about 45 billion gallons. This ethanol water solution would be reformed onboard advanced vehicles equipped with fuel cells, which are 2.5 to 3 times more efficient than conventional engines. So that 45 billion gallons (hypothetically consumed in today’s conventional engines) would be leveraged into 135 billion gallons worth, when consumed in 3X more efficient fuel cells. Combine this amount with ethanol made from biomass waste, arid biomass crops such as weeds, trees and grass, and algae based ethanol, which do not require farmland.

The benefits of getting off foreign oil are multiple. National Security for one. And economically, we cannot sustain the current foreign oil Trade Deficit, without continuing to add to the National Debt. We pay for foreign oil with corporate stocks, real estate, and debt instruments that are added to the National Debt. Every year at tax time, the IRS pays interest on the National Debt to the Federal Reserve Corporation, paid for out of income tax receipts. So we are paying for foreign oil mostly with debt instruments and paying revolving interest on fuels made from foreign oil. This will keep happening as long as we have deficit spending and a balance owed on the National Debt to the Federal Reserve. We pay NO revolving interest on domestically made biofuels. Compared to our domestic fuel industry, which creates thousands of jobs, strengthens our economy, and generates local, State and Federal tax revenue, buying foreign oil is money and assets leaving the Country. There will still be a market for crude oil and liquid fuels for decades to come. However, there will be a gradual shifting to alternatives. When plug-in hybrids are introduced, the consumption of liquid fuel will gradually decline, perhaps over a 20 to 25 year period. A plug in hybrid equipped with an ethanol-water reformer powering a fuel cell will consume only a fraction of liquid fuel compared to a conventional ICE. And therefore, as conventional vehicles are gradually replaced by the type of vehicles I envision, we will no longer need 140 billion gallons of gasoline and 60 billion gallons of diesel every year.

11:30 am November 28, 2008

David Ahlport wrote :

Or I guess I should rephrase.
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Unless you are making it so the entire world can get off oil, then there will still be a healthy market for oil.
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And if there's a healthy market, then the people you don't like still get their money.
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If you have ever taken a basic macro-economics class, you should have already known that.

11:24 am November 28, 2008

David Ahlport wrote :

re: Jeff Baker
==ethanol has the potential to replace foreign oil entirely.==
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So where's the Ammonia, Fresh Water, Potassium, Phosphorous, and Farm Land going to come from?
greyfalcon.net/biolimits.png
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Also, remind me what the benefit of "getting off foreign oil" is?
greyfalcon.net/dilbert.png
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Unless you are "Getting off liquid fuels entirely", then "Getting off foreign oil" is worthless.

10:26 am November 26, 2008

Paul wrote :

Improve every aspect of the life cycle of ethanol.
(1) improve the efficiency of growing feedstocks through the elimination or reduction of photosaturation.
(2) Grow weed feedstocks that limit the necessity of applying pesticides and fertilizers
(3) Reduce or eliminate diesel fuel use in tractors with ethanol replacements.
(4)Plant diverse feedstocks that allow different harvest times to minimize oversized farm hardware working just one month a year.
(5) Locate ethanol plants locally to minimize transport costs to both feedstocks, valuable byproducts and ethanol distribution.
(6) Eliminate E-85 and produce hydrated ethanol which significantly reduces processing energy.
(7) Manufacture ethanol specific engines that take advantage of high octane value of ethanol to make the combustion process more efficient.
World Energy Problems Solved.

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Environmental Capital provides daily news and analysis of the shifting energy and environmental landscape. The Wall Street Journal’s Keith Johnson is the lead writer. Environmental Capital is led by Journal energy reporter Russell Gold, and includes contributions from other writers at the Journal, WSJ.com, and Dow Jones Newswires. Write us at environmentalcapital@wsj.com.